Economists Say House Stimulus Creates More Jobs Than Senate’s

By Matthew Benjamin

Feb. 10 (Bloomberg) -- Economists who support legislation to stimulate growth say the version passed in the House of Representatives would create at least half a million more jobs than the bill the Senate votes on today.

The key difference: The Senate version provides less money than the House measure for public works and aid to state and local governments. While the two measures have similar price tags, the Senate’s includes bigger tax cuts and adds tax breaks for auto and home buyers, part of a compromise to win some Republican votes.

“The House bill will create more jobs and a stronger economy than the Senate bill,” said Mark Zandi, chief economist at Moody’s Economy.com, who was a campaign adviser to Republican presidential candidate John McCain. Zandi estimates that the $838 billion Senate package would create about 625,000 fewer jobs than the $819 billion House version over the next two years.

The U.S. economy has lost 3.5 million jobs since the beginning of the recession in December 2007. President Barack Obama has pledged to save or create as many as 4 million jobs over two years through stimulus and other economic measures.

The Senate plan was hammered out last week between Democrats and moderate Republicans. While providing more generous tax breaks than the House version, the Senate agreement pared $40 billion targeted at helping state and city governments avoid layoffs, $19.5 billion for school construction, $7 billion for health care and about $1 billion for early education programs.

Stimulus Blunted

Excising or reducing funds to those programs significantly blunts the stimulative effects of the Senate package, economists say.

“The things that have been cut in the Senate compromise are some of the best job creating provisions in the House bill,” said Ross Eisenbrey, vice president of the Economic Policy Institute, a Washington-based research organization affiliated with organized labor. “It’s clear that the House bill is better.”

Not much of the spending trimmed from the Senate plan is likely to be restored in the final bill Congress sends to the president, said Pete Davis, president of Davis Capital Investment Ideas in Washington, which provides analysis of Congress to investors. He said moderate Republicans, including Senator Susan Collins of Maine, won’t vote for a final bill much larger than the one negotiated in the Senate.

“I don’t think Senator Collins can swallow another $5 or $10 billion, and they’re going to need her vote,” Davis said.

Tax Cuts

In addition, the Senate agreement adds or boosts several tax cuts, including a $15,000 tax break for homebuyers that’s expected to cost $35.5 billion and a credit for new car buyers, at a price of $11 billion.

“Those measures have some stimulative value, but nothing like the effect of a construction project or help for those most affected by the crisis,” said Will Straw, associate director for economic growth at the Center for American Progress.

The Senate also reserved $70 billion in its bill to prevent additional taxpayers from having to pay the Alternative Minimum Tax. Because the benefit will go mostly to upper income Americans who are less likely to spend it, the measure has very little value in boosting sagging consumer demand.

The Tax Policy Center in Washington gives it a D-minus grade for stimulative effect. It is “neither timely nor targeted,” and “makes no sense as economic stimulus,” according to a recent report from the TPC, a joint project of the Urban Institute and the Brookings Institution.

Apples-to-Apples

Not counting the AMT fix, which Congress probably would have passed this year anyway, the price tag of the Senate package is closer to $750 billion, Zandi said: “That’s the apples-to-apples comparison.”

Viewed that way, “the House bill is just bigger, and that matters,” said Dean Baker, co-director of the Center for Economic and Policy Research in Washington.

Not every economist agrees. Harvard University economics professor Martin Feldstein, who was a top economic adviser to former President Ronald Reagan, said both bills simply “add a tremendous amount to the national debt and add less to GDP spending.”

“We’re just not getting the bang in terms of increased economic activity,” Feldstein, a member of Obama’s Economic Recovery Advisory Board, said yesterday in a Bloomberg Television interview. Feldstein didn’t discuss the job creation effect of the legislation in the interview.

While Feldstein says a stimulus package is still necessary, other economists reject the idea altogether.

“There’s basically no historical evidence since World War II that stimulus bills help,” said William Niskanen, chairman of the free-market Cato Institution in Washington. His organization ran an advertisement in national newspapers today, signed by 243 academic economists, registering their dissent.

Still, the focus of the Washington debate remains on the composition of a package that is almost certain to be enacted.

“Economies to some extent are self healing, but often need government assistance. This is the time for that,” said Allen Sinai, chief global economist at Decision Economics Inc. in New York. “To do nothing is a big mistake.”

To contact the reporter on this story: Matthew Benjamin in Washington at mbenjamin2@bloomberg.net